[tom_a]

Today's Lex Column (Financial Times) argues that the current low oil prices is a huge boost for the economy, compared to which government stimuli are peanuts. It is argued that "the world" saves 1,600 bn $ on its 2009 oil bill compared to 2008.

(Article to be found under: www.ft.com/lex )

I think that's pretty nonsensical. Sure, oil consumers save money. But oil producers earn less (and by definition exactly the same amount that consumers save). So consumers can spend more, but producers (and shareholders of oil companies) have to cut back. Plus, producers/shareholders will not only cut back on their consumption, but also on investments for exploration etc.

So even if there is a positive net demand effect for the world economy (assuming that oil consumers have a lower savings rate than oil producers), it's gonna be a small fraction of 1,600 bn $, and the overall effect will be far from huge.

Detailed discussion here:

http://miscellaneous-economic-ramblings ... world.html

[heroineworshipper]

Oil went from $30 to $60 in 9 years. Hardly a lowering in price.

[tom_a]

The FT was referring to the drop from mid-2008 onwards.